October 2007 Newsletter

FOREWORD

Dear all, I would like to thank you for the positive feedback regarding our monthly e-news letters. If there are ever any specific issues that you would like us to comment on or there are any particular questions which you would like to raise, please e-mail me at lpmoore@primeaccountants.co.uk.

Anyhow, what a month it has been, starting with the pre-budget announcement.

As you are probably all aware the major reform to capital gains tax announced in the Chancellors pre-budget statement will be introduced via a single rate of 18 percent from 6th April 2008. According to the Chancellor this “aims to ensure a more sustainable system that is straightforward and internationally competitive”. As part of this new system the annual exempt amount (currently £9,200) will remain in place, but taper relief and indexation allowance will be withdrawn.

The reality is that this proposed abolition of CGT taper relief is none other than draconian, particularly as there appear to be no transitional provisions. Not only will it affect disposals occurring after that date; it will also hit gains on earlier disposals which have been deferred but which crystallise after that date. Gains deferred under EIS and gains arising on earn-outs are two hard cases which immediately come to mind. As a response to inappropriate use of the relief by private equity firms this is overkill with a vengeance!

We envisage that many of you will wish to urgently explore possibilities of reorganising your affairs so as to recognise gains before April 2008, including perhaps re-alignment of property investment portfolios or solvent liquidation of trading businesses.

For family companies the blow is turned into something of a double whammy by the proposals to target “income-splitting” of the kind which HMRC found offensive in the Arctic Systems case, which we featured in our recent Newsletter. This time last year a successful businessman could (by giving shares to a spouse), pay no personal tax on dividends equal to two lots of basic rate band, leave the rest of the profits in the company until liquidation and then pay tax on the proceeds on liquidation at an effective rate of 10%. Oh happy days! Now the income-splitting looks like going and the 10% turning into 18%.

If you are concerned about the potential impact of the pre-budget statement on your business, please contact us.

THIS MONTH’S E-NEWS CALL TO ACTION?
QUESTION: ARE YOU HAPPY WITH YOUR BUSINESS SOFTWARE?

ANSWER – YES, then take a look at MAMUT; it could be even better for you!
ANSWER – NO, then take a look at MAMUT; it’s amazing for SME businesses!

MAMUT – MAMUT – MAMUT!
I do not apologise for my excitement regarding our new software offering MAMUT.

If you are not already aware Prime Chartered Accountants (Prime) have been selected as preferred suppliers for MAMUT business software in the Midlands.

What is MAMUT?
MAMUT is an Enterprise Resource Planning (ERP) tool for SME businesses which allows a business to streamline its business processes economically and efficiently.

MAMUT’s “strap line” is “Making Businesses Better”, a promise that we whole heartedly concur with. MAMUT won Accountancy Age’s Small Business Software of the year title 3 times out of the past four years; so it’s proven and fully supported by leading industry experts.

You’ve probably all heard of SAGE. SAGE’s emphasis is on the financials; MAMUT’s emphasis is on your client and your business processes.

Prime has noticed that clients and businesses that are successful and fast growing seem to be particularly interested in MAMUT. They are excited by the concept of one tool which allows their business to manage all their systems through one interface; offering detailed financials, marketing tools, subscription invoicing, stock control and much much more. It is fantastic!

We suggest calling us to discuss whether this product would add value to your business. If we believe there is a value for your business, we will set up a demonstration tailored to your specific needs.

Importantly, we are not pushing this tool to those who do not need it! We are interested in your business achieving its objectives. If it is not appropriate, we will tell you so.

Prime offer a full implementation service and a long-term help desk is available via MAMUT, as part of the monthly service agreement.

If you would like to find out more about MAMUT, contact Justin Craig, our new Business Development Director, on 024 7655 4314, or e-mail : jcraig@primeaccountants.co.uk.

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Reminder of new minimum wage rates

National Minimum Wage (NMW) rates rose again from 1 October 2007. The increased rates are as follows: 

Adult rate (workers aged 22 and over) increased to £5.52 (from £5.35)
Development rate for 18-21 year olds increased to £4.60 (from £4.45)
Development rate for 16-17 year olds increased to £3.40 (from £3.30)

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24 days annual holiday entitlement

Employees minimum annual holiday entitlement increased from 1 October 2007. The holiday entitlement increased to 4.8 weeks (24 days if employees work a five day week) from 1 October 2007 and to 5.6 weeks (28 days if employees work a five day week) from 1 April 2009. These entitlements will be pro-rated for those employees who work part time. The increased entitlements include bank holidays, so if you or your employees already receive 24 days inclusive of bank holidays there will be no additional entitlement. 

To help employers calculate their employees’ new entitlement an easy to use tool is available on the Business Link website. An ready reckoner table is also available for more straightforward cases.

Under the rules for the introduction of the new entitlement employers may pay employees for the additional holiday entitlement (the additional 0.8 weeks or 4 days) until 1 April 2009. This is a temporary measure to ease the transition.

Internet links: BERR guidance frequently asked questions, ready reckoner and Business link calculator

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Construction Industry Scheme penalties

The Construction Industry Scheme (CIS) was significantly changed from 6 April this year when monthly returns were introduced for contractors. The CIS300 return details the payments made to subcontractors and any tax deducted from those payments. The returns have to be submitted to HMRC by 19th of the month. 

Since the new CIS was introduced in April HMRC have not been imposing penalties for the late submission of the monthly returns but have advised that they will charge penalties for late returns from 19 October 2007.

The penalties will apply not only to returns submitted late from October onwards but also to any outstanding returns for previous months which have not been received by HMRC by ‘close of business’ on 19 October 2007.

Remember, even if a return is NIL, it must still be filed and will attract a penalty if late. NIL returns can be filed by ringing the CIS helpline on 0845 366 7899, option 4. If you do not pay subcontractors, regularly ask the Revenue to record you as ‘inactive’ which will suspend the issue of returns for a period.

How much is the penalty?

The automatic, interim, penalty of £100 will be issued for each return that HMRC have not received by 19 October 2007. Further automatic penalties will be issued for each subsequent month until the return is received.

Further penalty notices may be issued to contractors with more than 50 subcontractors when the returns are eventually submitted to HMRC.

If you would like help with completing the returns please contact Monima Das in our Prime Paysolve payroll bureau on 024 7655 4321.

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Phishing scams

HMRC have updated their guidance on so-called 'Phishing' scams targeting taxpayers in an effort to fraudulently obtain personal information from them. 

In an effort to address this problem and increase awareness of taxpayers to the scams, HMRC have set-up a 'Phishing' section on its website. The page can be found by visiting the link below.

One scam advises individuals that they are entitled to a tax rebate. The email tries to coax individuals to complete a form disclosing their bank or credit card details, on the understanding that the ‘repayment’ will be paid directly into their bank account.

If you receive any correspondence which you believe is suspicious, please contact Sarah Nickols in Prime Coventry on 024 7655 4310 or Jan Hornby in Prime Solihull on 0121 711 2468.

Internet link: HMRC phishing

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Back to school with Tax Credits

Claimants of tax credits are being reminded by HMRC that they must let them know of changes in their family circumstances within one month of the change. HMRC advise that, with children now back at school and those with older children starting or returning to college and university courses soon, it is important that claimants let HMRC know if family circumstances have changed. 

HMRC give a few examples to help claimants:

‘If you have a child over 16 who's started, or is about to start, further education at school or college, make sure you call HMRC as soon as possible and let them know. Otherwise, it could mean you're missing out on extra money.

And, if you told HMRC your child was staying on at school or college after their exams and they've since changed their minds, contact them now, so they can update your claim.

Also, if your childcare costs, the hours you work, or the amount you earn changed after the kids went back, HMRC needs to know that, too.

In fact, if you're receiving tax credits, it's important to let HMRC know as soon as you can about changes in your circumstances, whatever the reason or time of year.’

Internet links: Press release and HMRC tax credit information

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Tips may be part of the minimum wage

A tribunal has ruled that, in certain circumstances, tips given to employees count towards the National Minimum Wage (NMW). A group of London food businesses took the case to court after HMRC claimed that some staff had not been paid the NMW between 2000 and 2003. The employees were paid between £3 and £4 per hour through the payroll plus substantial ‘tronc’ payments. The ‘tronc’ payments, made under deduction of PAYE, are money from service charges and credit card tips.

The tribunal ruled that, although the tips were distributed by a ‘troncmaster’ using a separate payroll system, this was to be regarded as part of the business payroll. 

HMRC guidance on the treatment of tips and troncs is also contained in the link below.

Internet links: Publican article and HMRC guidance

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VAT on home computers

HMRC have issued guidance on a change in their policy regarding VAT recovery on computers as a result of the withdrawal of the favourable benefit in kind treatment which used to apply to employees who were loaned computer equipment for personal use at home. Employers who have already loaned employees computers prior to the change in the benefit in kind rules do not have to change the VAT treatment of these assets and related costs. 

HMRC will now expect businesses to identify private use and account for VAT on the private use. This is the treatment that should be applied to other business assets where private use is allowed such as mobile phones.

This change in policy will not affect businesses where computers are made available to employees who need the computer in order to carry out their job. In these circumstances, HMRC’s view is that it is unlikely that any private use will be significant when compared with the business need for providing the computer in the first place.

If an employer is unable to demonstrate that it is necessary to provide an employee with a computer in order to carry out the duties of his employment, only a portion of the VAT incurred can be reclaimed. For more help with this please contact Sarah Nickols in Prime Coventry on 024 7655 4310 or Jan Hornby in Prime Solihull on 0121 711 2468.

Internet links: HMRC VAT brief

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New annual investment allowance

A reminder that the amount of tax relief businesses get on the purchase of capital equipment changes next April. If you are planning the purchase of capital equipment next Spring and want to know how the amount and timing of the relief will be calculated under the old and new rules please contact Sarah Nickols in Prime Coventry on 024 7655 4310 or Jan Hornby in Prime Solihull on 0121 711 2468.

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Capital Gains Tax (CGT) changes outlined in the pre-budget report

Although we will have to wait for the budget for precise details of the changes, if you are considering disposing of an asset that will be liable to CGT you should consider the likely difference in the tax treatment depending on whether it is disposed of before or after 5th April 2008.

For help with this please contact Sarah Nickols in Prime Coventry on 024 7655 4310 or Jan Hornby in Prime Solihull on 0121 711 2468, giving them full details of the asset purchase and likely disposal value so that they can estimate the differences in the tax treatment for you.

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Disclaimer
This newsletter is published for the information of clients and other recipients of our email newsletters. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this newsletter can be accepted by the firm.